Venezuela-Argentina: two recovery concepts

An Interested Observer, long time reader and occasional poster, sends us an interesting comparison between the performance of Argentina and Venezuela. It looks like Kirchner is making good use of the bonds he is selling à la brooklyn bridge to Venezuela while in Venezuela only some stock traders close to chavismo are minting money.

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Who’s #1?
(In Results, not Press Coverage!)

There is a populist, left-wing South American leader who, after seeing his country fall into a serious recession, has presided over a substantial and rapid recovery. This recovery is not only in terms of GDP growth above pre-recession levels, because this country also leads the continent (and perhaps even the world) in terms of poverty reduction, unemployment reduction, and job creation (relative to population size), in the period since the worst part of the recession.

Who is this leader?

If you said Hugo Chavez, then perhaps you’ve fallen prey to the hype, either that of the media or of Chavez himself. For all the attention given to him and his claims of turning the economy around, it’s out of proportion with the results, as based on official government statistics.

So if not Chavez, who is it? Nestor Kirchner. The country is Argentina.

Venezuela and Argentina went into serious recessions in recent years, Venezuela due to a national general strike in late 2002 and early 2003, and Argentina due to a complex crisis that started in 2001 but hit hardest in 2002. The causes were entirely different, but that shouldn’t matter in terms of this analysis, since I’m comparing improvements in poverty and employment to the change in growth. (And perhaps it’s easier to recover from a strike, where many people can simply go back to work, than one with many more external factors.)

Including forecasts of expected growth in 2006, Venezuela will have grown 41.2% since the low-point of its recession, while Argentina will have grown 40.1%. (GDP was up 28.9% in Venezuela and 29.5% in Argentina through the end of 2005.) Pretty similar results, so one would expect results in related categories – like poverty and unemployment – to be similar. Here’s a graph of GDP growth rates in the two countries.

Let’s turn to poverty. To me this is the most important factor, and it would seem to be also to Chavez and many of his supporters, both in and out of Venezuela. Since a high poverty rate of 62.1% of the population in early 2003 (measured by semesters, since that is how the Argentine data is presented), Venezuelan poverty has dropped to 39.7% in early 2006. Argentina poverty has gone from 54.3% (late 2003) to 31.4%. Argentine poverty has fallen more (22.9 vs. 22.4) in absolute terms since its crisis, and comparing it to the original amount, nearly 17% better. The difference can be seen here on the left graph (which also indicates that the Argentine crisis was longer and deeper than the Venezuelan one) that you can click to enlarge.

Now, unemployment. I won’t say this is as important as poverty, but it’s absolutely essential when trying to reduce it. A job helps a person get out of poverty on their own, and should free the government to use its resources on fewer unemployed people, potentially helping address poverty in two ways. In Venezuela, unemployment has fallen from 19.2% in early 2003 to 10.5% in early 2006. In Argentina, it went from 21.5% to 10.9%. Again, the result in Argentina is better in absolute and also in relative terms, by over 10%.

On the topic of unemployment, I also checked a related statistic, percentage of the population working, which proves quite interesting. In theory, this should move directly opposite of unemployment, and the trends for the two countries should be very similar, given their similar unemployment changes. But they don’t, as seen here:


In Venezuela, the recent numbers are barely 1% higher than the pre-crisis results, while in Argentina the improvement is over 4%. The proportion of people working in Argentina is higher than in Venezuela, and change since the crisis is over three times (yes, over 200% more, while the change in unemployment was only 10% more) as great. The difference is even more dramatic up close, on the right.

In Argentina, the decrease in unemployment comes directly from more people (41.3% of the population in early 2006 vs. 32.8% in early 2002) getting jobs. In Venezuela, it’s partly from that (40.3% vs. 37.5%), but also because of large numbers of people leaving the workforce and no longer seeking employment.

What does this mean? Besides the questions of whether or not the INE is “cooking its books” to magically make the unemployment figure fall, it shows that the Argentine recovery is far more grounded in increased employment – i.e., productivity – than the Venezuelan one. Venezuela’s recovery is based on another factor – presumably the increased oil revenue.

More evidence which shows how tenuous the Venezuelan recovery is (hat tip to Flanker, who helped me discover this, though I doubt that he wanted me to reach this particular conclusion) is the fact that Venezuelan exports are down in every single sector except oil and minerals. (See here, and the mineral category seems to consist of mostly private sector oil exports.) Combine that with the fact that imports have increased 33.5% in 2006 compared to the same period in 2005, and there is literally nothing but the commodity price increases to explain the recent GDP growth in Venezuela. So much for endogenous growth!

While I have some definite doubts about the long-term sustainability of the recovery in Argentina, I have no doubt whatsoever that it is more likely to be sustainable than Venezuela’s. Not only for the reasons given above (especially the fact that Argentina has accomplished greater reductions in poverty and unemployment without greater GDP growth), but that the Argentine growth is much broader-based than Venezuela’s, and the country is successfully attracting what seems to be a lot more investment.

Why does Venezuela have poorer results with similar growth? Could it be the money wasted on the magical UN mystery tour? Scaring away the private sector? Rampant corruption? Shutting down businesses without finding tax evasion? Keeping and expanding laws which prevent hiring new employees? I’ll end the list there, since I can’t say which one(s) is/are responsible, but it’s evident that something is holding back the Bolivarian revolution, and making it less efficient.

For all the talk about improving poverty, there is clearly room for improvement in Venezuela. Perhaps the best advice someone could offer Chavez is to start being more like Kirchner, and less like…Chavez.

Tags: venezuela, chavez, argentina, kirchner